Biofuels

[ Barrels of Oil Equivalent Saved: ]

25.3M

[ Jobs Impact:]

Low

Medium

High

[ Budget Impact:]

Low

Medium

High

[ Conventional Pollutants Reduced: ]

N/A

[ Megatons of GHG Reduced:]

7.7

Overview

Many biological materials like plants or animal fats can be made into fuels that power vehicles, ships, and aircraft, while producing up to 90% less greenhouse gases than their petroleum-based equivalents.1 Like domestic oil drilling, adding these home-grown products to America’s fuel mix strengthens our GDP2 and reduces our reliance on foreign petroleum.3 Federal tax incentives and demand-drivers like the Renewable Fuel Standard (RFS) helped increase production from 1.8 billion gallons of ethanol and biodiesel in 2001 to 14.9 billion gallons in 2011.4 To continue its expansion, the industry will require additional private investment in advanced biofuel technologies, as well a clear regulatory path for bringing new technologies to the market.

Analysis

Though the U.S. biofuels industry was built around corn ethanol, producers have been turning their attention toward higher-performing technologies since 2007.5 Cellulosic biofuels, for instance, take advantage of non-food feedstocks—like grasses, wood, and corncobs—that generate 50-90% less GHG emissions per gallon than basic corn ethanol.6 Some of these feedstocks are waste products that would otherwise go unused, while others can be grown on marginal lands unsuitable for growing other crops. All told, the U.S. could sustainably harvest enough of these cellulosic materials to produce 37 billion gallons of low-emissions domestic fuel,7 enough to replace over one quarter of the gasoline consumed nationwide in 2011.8 The Midwest and South are particularly rich in cellulosic materials, giving them additional opportunities for economic development.9 Cellulosic fuel technologies are just now reaching commercialization. To increase production levels and lower the cost curve, biofuels producers will need additional access to capital.

Cellulosic feedstocks can be used to produce a variety of advanced fuels. Still, many of the earliest cellulosic facilities will produce ethanol.10 Unfortunately, America is fast approaching the “blend wall”—the point at which the blending of additional ethanol into our gasoline will require specifically designed vehicles and separate infrastructure for distribution and fueling.11 Overcoming this hurdle will require greater production of “drop-in” biofuels. These fuels are nearly identical to their petroleum-based equivalents at a molecular level, and can be blended with petroleum products at any concentration while still delivering the environmental benefits of ethanol.12

Increasing production of drop-in fuels from cellulosic feedstocks will require the U.S. biofuels industry to overcome multiple challenges. Producers will need to attract substantial amounts of private investment in order to initiate and expand their operations. The RFS guarantees a market for advanced biofuels, which helps lower risk and attract investors. But meeting the law’s aggressive targets will require an additional $80 billion for new facilities, feedstock supply chains, and fuel distribution.13 Even if producers secure financing, they must still navigate a complex federal regulatory process designed to ensure that their fuels meet the GHG emissions standards set by the RFS.14 Delays in obtaining this regulatory approval from EPA, known as a “pathway”, can interfere with the business models of these fledgling companies, making them less likely to reach profitability and expansion.

Implementation

Federal policy should encourage investment in advanced biofuels, particularly in fuels that are compatible with standard engines, pipelines, and fueling equipment. It should also reduce the amount of time required to introduce new technologies to the market.

Credit Refiners for Investing in Advanced Biofuels Technology

If EPA develops a New Source Performance Standard for greenhouse gas emissions at petroleum refineries, this standard should credit refiners (or their parent companies) for their investments in advanced biofuel R&D, production, and feedstock supply chain based on the future GHG abatement the investment would eventually produce.15 This would give refiners additional flexibility in meeting federal requirements, while also steering much-needed capital toward new biofuel plants. Additional credit should be given for investment in the production of drop-in fuels to further encourage these technologies.

Expedite EPA Review of New Pathways

Congressional appropriators should direct an additional $500,000 to EPA’s Office of Transportation and Air Quality. This one-time appropriation would provide for additional personnel and related resources to enable more rapid processing of pathway petitions, prioritizing applicants that are closest to the production stage and those who have received federal funding.16 EPA should be required to report to Congress on how these additional resources were used and the impact they had on the speed of petition processing. EPA also should be required to submit a quarterly report to Congress on the status of all unresolved petitions that have been in the review process longer than six months, the estimated date of completed review, and the involvement of any other federal offices that could have resulted in a processing delay.

Complete Review of Pathways Using Wood as a Feedstock

EPA began to review the RFS eligibility of fuels made from wood in 2010.17 While the process was intended to require less than one year, EPA has still not completed its review of this specific feedstock.18 There are now multiple facilities ready to produce extremely low-carbon fuels using wood from purpose-grown trees.19 But without a pathway for the feedstock, the profitability and emissions reduction potential of these companies is severely limited.20 Assuming that eligibility requirements are met, EPA could quickly boost the supply of cellulosic fuels by immediately moving forward with pathway review for specific tree species needed by the facilities that are standing by.21

Make Advanced Biofuel Production Eligible for Master Limited Partnerships

Inclusion in Master Limited Partnerships could open up cheaper and earlier financing options for biofuel production. Master Limited Partnerships are covered in the Clean Energy Finance Component.22

United States, Environmental Protection Agency, Office of Transportation and Air Quality, “EPA Finalizes Regulations for the National Renewable Fuel Standard Program for 2010 and Beyond,” Fact Sheet, February, 2010. Accessed April 15, 2013. Available at: http://www.epa.gov/otaq/fuels/renewablefuels/regulations.htm.

According to DOE, “cellulosic feedstocks are non-food based feedstocks that include crop residues, wood residues, dedicated energy crops, and industrial and other wastes.” The RFS2 requires cellulosic biofuels and all renewable fuels to emit at least 60% and 20% less GHG (respectively) than their petroleum-based equivalents. EPA has approved a pathway for a fuel that produces 89% less GHG than gasoline. See United States, Department of Energy, Office of Energy Efficiency and Renewable Energy, “Ethanol Feedstocks.” Accessed April 15, 2013. Available at: http://www.afdc.energy.gov/fuels/ethanol_feedstocks.html; See also: United States, Environmental Protection Agency, “EPA Lifecycle Analysis of Greenhouse Gas Emissions from Renewable Fuels,” Report, May, 2009. Accessed April 15, 2013. Available at: http://nepis.epa.gov/Exe/ZyPURL.cgi?Dockey=P100B3F8.txt; See also, “Changing World Technology's (CWT) proprietary renewable diesel fuel products,” p. 1.

Based on data from the U.S. National Renewable Energy Laboratory and Bio Economic Research Associates. Much of this total comes from waste products that are not currently utilized, while a large portion of the remainder would be produced from energy crops requiring modest land use changes. See United States, Department of Energy, National Renewable Energy Laboratory, “A Geographic Perspective on the Current Biomass Resource Availability in the United States” Report, December, 2005, p. 50. Accessed April 15, 2013. Available at: http://www.nrel.gov/docs/fy06osti/39181.pdf. See also “U.S. Economic Impact of Advanced Biofuels Production,” Report, Bio Economic Research Associates, p.7, Accessed April 15, 2013. Available at: http://www.bio.org/articles/us-economic-impact-advanced-biofuels-production-1.

Measured by volume, not energy content. Data taken from EIA calculation of total gasoline consumed, converted from barrels to gallons. See United States, Department of Energy, Energy Information Administration, “How Much Gasoline Does the United States Consume?” FAQ, July 18, 2012. Accessed April 15, 2013. Available at: http://www.eia.gov/tools/faqs/faq.cfm?id=23&t=10.

United States, Library of Congress, Congressional Research Service, “Intermediate-Level Blends of Ethanol in Gasoline, and the Ethanol ‘Blend Wall,’” Report, October 18, 2010. Accessed April 15, 2013. Available at: https://opencrs.com/document/R40445/.

While EPA reviews pathways that give producers eligibility for credits under the RFS (a major component of any business model), other federal agencies like the Department of Agriculture and Department of Energy have programs that provide financial assistance to advanced biofuels producers. In some cases, federal dollars have gone to support companies whose viability is now threatened by the delays of another federal entity. One example of this occurrence is a USDA award of $17 million in 2011 to help a biofuels company acquire poplar trees for processing. However, the company still does not have a pathway from EPA. United States, Department of Agriculture, Farm Service Agency, “Energy Programs,” August 23, 2011. Accessed April 15, 2013. Available at: http://www.fsa.usda.gov/FSA/webapp?area=home&subject=ener&topic=bcap-pjt-bloc-nine.

EPA explained in 2010 that it had begun its assessment of biofuel from wood, as well as three other pathways which it expected to complete by the end of that year. EPA asked that no petitions be submitted for these pathways, since it had already begun to assess them. See United States, Environmental Protection Agency, “Questions and Answers on Changes to the Renewable Fuel Standard Program (RFS2),” February 6, 2013, Question 3. Accessed April 15, 2013. Available at: http://www.epa.gov/oms/fuels/renewablefuels/compliancehelp/rfs2-aq.htm#3.

The Office of Transportation and Air Quality is also considering a broader assessment of wood feedstocks to include multiple species of trees. While this process requires formal rulemaking, and therefore additional time to complete, it would expedite pathway approval for future applicants wishing to use wood as a feedstock. See United States, Federal Register, “Regulation of Fuels and Fuel Additives: Modifications to Renewable Fuel Standard Program; Final Rule and Proposed Rule,” May 10, 2010, vol. 75, Number 89, p. 26029. Accessed April 15, 2013. Available at: http://www.gpo.gov/fdsys/pkg/FR-2010-05-10/html/2010-10851.htm.

How to Use the PowerBook

The PowerBook is a menu of á la carte options, not a blueprint that requires every element to hold it together. It is designed to provide federal policymakers and regulators with a selection of policy ideas to help solve specific challenges in how our nation produces, transports, and consumes energy.

SECTORS

The PowerBook is divided into five economic sectors: power, transmission, buildings and efficiency, industry, and transportation. Each sector includes multiple components, which are specific elements of that sector that require some policy change. Components that impact multiple sectors, such as clean energy finance or regulatory reform, are included in a sixth cross-sector section.

COMPONENTS

Each component has three parts: a short overview, an analysis of the challenges and opportunities for energy, employment, and the environment, and an implementation section that outlines specific actions that Congress, the administration, or the independent regulatory agencies can take. The policy recommendations in the implementation section are intended to serve as frameworks for more detailed legislation or regulatory reform proposals.

The components in the PowerBook reflect the input from a broad group of business leaders, policymakers, analysts, and academics. We will update them regularly to add new policy ideas, revise existing proposals, and reflect progress made in Congress or through the regulatory process. We invite readers to provide us suggestions to build upon the proposals in our components or new policies we should consider adding. Please send us your comments via the contact page.

OUR ANALYSIS

The PowerBook provides both pragmatic ideas to move America toward cleaner energy and data showing the potential impacts that these policies could have on our energy systems and economy. By combining several datasets, from economy-wide to industry-specific, we have developed a basic methodology for each component to estimate the effects these policies would have on CO2, conventional pollutants, and domestic energy needs. While future, independent modeling will provide higher accuracy, the current metrics offer a general barometer of impact and a way to compare the effects of various components.